Italy at war with tax evasion

It's an exaggeration to say all Italians have something to hide. But equally, it's safe to assume many of the 15 million who claimed a net income of zero last year, do live in fear of a knock on the door.Kaiser Nelson

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THE Italian government's new year push to curb the country's ruinous levels of tax evasion appears to have already divided opinion.

One strategy in the all-out war on tax cheats is to probe deeper into people's bank accounts with the authorities' new powerful computer system, Serpico.

It might, however, have been named "Big Brother" given some of the reactions it has already provoked. Popular comic and political activist Bepe Grillo on Monday week described the tax collection office Equitalia as the "terror of every Italian" and said he could understand why an anarchist group had that very day sent it a parcel bomb.

A few evenings earlier, an 80-strong squad of tax inspectors raided hotels and restaurants in Cortina to publicly put the frighteners on the chi-chi ski resort's high concentration of hard-up yacht owners, many of whom claim to earn less than AU$20,000 a year.

It's an exaggeration to say all Italians have something to hide. But equally, it's safe to assume many of the 15 million who claimed a net income of zero last year, do live in fear of a knock on the door.

Figures quoted for annual loss of tax revenues vary from AU$120 billion to $300 billion a year. Just before Christmas, La Repubblica newspaper quoted finance department data which suggest levels of tax evasion have leapt fivefold in the last three decades, with the treasury losing $275 billion in the last year alone.

With such vast sums at stake, getting Italians to cough up is central to new Premier Mario Monti's plan to slash debt and balance the national budget by 2013. Authorities have been turning up the heat on evaders in recent years. But with just $35 billion from tax cheats since 2008, there is a very long way to go.

Tax evasion has contributed to one of the world's largest public debts, which at $1.9 trillion has panicked the money markets - and threatened the survival of the euro. But conversely, Bank of Italy figures published in December showed that in terms of personal wealth, Italians are possibly the richest people in the world, highlighting the imbalance between Italy's vast personal wealth and the desperate state of the public purse.

The new government has already given revenue protection a high priority. In addition to scrutinising the accounts of people who claim low incomes and boosting cross referencing with other indicators of wealth, it will also ban cash transactions above $1206.50 and lower the threshold at which tax evasion becomes a criminal offence.

Many economists, such as Professor Francesco Gavazzi of Milan's Bocconi business school, think the government should also introduce tax relief on more goods and services to encourage customers to demand receipts from the self-employed and small businesses.

"Even tax relief as high as 30 per cent would leave the government in pocket," he said.

But there would still be the tens of thousands of small shops and restaurants whose goods or services are never going to qualify as tax deductible. The law states customers must take an official receipt out with them every time they pay in a bar or restaurant, and keep hold of it for 100 metres - or face a fine. This is meant to deter businesses from obscuring their earnings. But in a country where pavements are used as car parks with impunity, the chance of the arcane receipt law being routinely enforced are slim, and everyone knows it.

And then there's the problem of the vast sums hidden overseas. At the end of last year a couple from Venice were nabbed by the finance police after declaring only six euros of income in a decade. A 10-year audit performed on the alleged tax cheats found more than 300 million euros of undeclared wealth, much of which was tucked away in foreign accounts.

One banking association in the Italian-speaking canton of Switzerland estimates that the banks there are harbouring $130 billion of Italian assets, stashed out of reach of Rome's tax authorities.

The squirrelling away of private assets was graphically illustrated last month when a lorry carrying 13 tonnes of gold was stopped as it attempted to pass over the boarder to Switzerland.Previous governments have adopted a carrot and stick approach by threatening evaders and simultaneously offering amnesties in which offenders have been promised anonymity and low taxation rates of just 5 per cent on money they bring back from abroad."

Professor Franco Pavoncello of Rome's John Cabot University said ministers increasingly had the support of those who did pay their taxes.

"Attitudes are now changing; people are now saying; 'why should I be poor when this person who's not giving me a receipt isn't paying his taxes?'"

But ultimately, many pundits say a mixture of coercion and changing attitudes will not be enough either, to overcome human beings' natural aversion to being taxed - and for Italy to solve its revenue problem.

"Until the government lowers the burden of taxation there's always going to be the incentive to evade taxes; the overall tax rate here of 45 per cent is just too much," Professor Gavazzi said."The trouble is they will need to cut public spending to reduce it.